By Joshua Dayan and John Nocket
So you graduated! You got a high school diploma, a funny hat—and a long list of new responsibilities. Before long, you'll be juggling the costs of food, school supplies, and your social life. To make sure all of this goes smoothly, your first step should be opening checking and savings accounts.
These bank accounts are a simple way to manage all of the money you have coming in and going out. Read on to learn how checking and savings accounts work, why you need them, and what you should know before opening them.
Checking accounts are all about access to your money. They provide a safe and convenient place to deposit your cash, checks and student loans, and enable you to easily withdraw your money when you need it. You can even do some of these transactions automatically—many employers offer automatic deposit, and many banks allow you to use electronic payment tools like Zelle to automatically send money to and from your friends or family members.
Contrary to the name, checking accounts aren't just about writing checks: in addition to helping you manage your money, they can make it easier to track your day-to-day spending. And, while you can use them to write checks for things like paying rent, a debit card or mobile wallet linked to your account allows you to swipe on the go and get cash at an ATM.
However, there are two reasons why you may not want to keep all your money in a checking account. First, most checking accounts don't pay interest, so your money doesn't grow while it sits in your account. Second, because it is easy to access your money when it's in a checking account, it's easy to spend too much of it.
What's the solution? A savings account!
Like the name says, savings accounts are all about saving. You put money in the account and then leave it alone. Over time, your money gains interest, which is like a small payment the bank gives you in return for the privilege of holding on to your money.
Saving is a critical part of your financial life, and banks make it easy to do. For example, many banks offer automatic savings, in which they automatically put part of your paycheck into savings, or round up your checking account purchases to the nearest dollar, and put the difference into your savings account. These automatic savings tools allow you to "set it and forget it," so you save without even thinking about it.
Savings accounts don't offer as much access to your money as checking accounts. Federal regulations normally limit you to six withdrawals or transfers per month. Due to the coronavirus pandemic, the Federal Reserve has lifted this restriction, allowing banks to suspend the six-transaction limit, but banks can still charge for “convenience” withdrawals. And, typically a debit card will not be attached to your savings account, making it more inconvenient to access your money, but cards can normally be used to access savings funds at the ATM. While this makes it easier to save, it means you have to plan ahead when plotting out your monthly expenses.
Putting it together
You don't need to choose between a checking or savings account—in fact, many people combine the best aspects of both accounts. They can keep the money they need for expenses in their checking account, and put their additional money in savings, at least for the short term. That way, they get the easy access of checking with the interest that comes from savings.
This can be especially useful in college: many students get large deposits from their student loan providers or family members but don't use all the money at once. It makes sense to keep it in savings, where it can gain interest—and where it's harder to spend. When they have a big payment due for tuition, fees, or rent, they can transfer funds back from their savings to their checking account.
So what should you consider when choosing your accounts?
Are they convenient?
What's more convenient than having a bank branch around the corner? Being able to bank from your bed. Or your couch. While streaming TV. In your pajamas.
You get the idea.
Many banks have their own apps that you can access from your smartphone. Find out what you can do with the app from the bank you're considering. Can you access your account balances? Deposit a check? Report a stolen card? Locate ATMs? Does it connect to payment apps like Zelle? A good banking app should be able to do all of that and more.
Will you have to pay a monthly service fee?
Some checking accounts require you to pay service fees. Usually, there are ways to get these waived — like setting up a direct deposit for your paycheck if you have a job. If you're a college student, look into opening a college checking account where the service fees are waived while you're in school.
What overdraft protections are available?
If you make a charge on your debit card for more money than you have in your account — for example, if you buy a $7 smoothie and only have $5 left in your account — you'll overdraw your checking account by $2. In most cases, overdrawing your account triggers a fee — usually $35. So you'd end up $37 overdrawn, instead of just $2!
Luckily, most banks offer low balance alerts for checking accounts. You can set an alert for an amount like $50, and if your account goes below that threshold you get a text or email so you know you're running low, and can transfer money to cover your expenses.
If your checking and savings accounts are at the same bank, the bank can do this for you automatically through a feature called overdraft protection. With overdraft protection, your bank uses the funds you have in your savings account to cover any charges that overdraw your checking account.
So how do you open an account?
Opening a checking or savings account is pretty easy: it usually takes less than an hour, and only requires that you have two forms of state-issued identification (a passport, driver's license, birth certificate, or social security card, for example) and some money to start the account. Many banks allow you to open accounts online, so you don't even have to go to a branch.
JPMorgan Chase Bank, N.A. Member FDIC